Tag: United Airlines

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31 Days to More Effective Compliance Programs

31 Days to a More Effective Compliance Program: Day 12 – Your Code of Conduct

What is the value of having a Code of Conduct? In its early days, a Code of Conduct tended to be lawyer-written and lawyer-driven to wave in a regulator’s face during an enforcement action as proof of ethical overall behavior. Is such a legalistic code effective? Is a Code of Conduct more than simply your company’s internal law? What should be the goal of the creation of your company’s Code of Conduct?

How important is the Code of Conduct? Consider the 2016 SEC enforcement action involving United Airlines, Inc., which turned on a violation of the company’s Code of Conduct. The breach of the Code of Conduct was determined to be an FCPA internal control violation. It involved a clear quid pro quo benefit paid out by United to David Samson, the former Chairman of the Board of Directors of the Port Authority of New York and New Jersey, the public government entity that has authority over, among other things, United’s operations at the company’s huge east coast hub in Newark, NJ.

Three key takeaways:

1. A Code of Conduct is a foundational document in any compliance regime.

2. The substance of your Code of Conduct should be tailored to the company’s culture, to its industry, and to its corporate identity.

3. “Document, Document, and Document” your training and communication efforts regarding your Code of Conduct.

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31 Days to More Effective Compliance Programs

One Month to More Effective Internal Controls – Code of Conduct as an Internal Control

In 2016, the SEC announced one of the most interesting non-international-focused FCPA enforcement actions. It involved a clear quid pro quo benefit paid out by United Airlines, Inc. to David Samson, the former chairman of the Board of Directors of the Port Authority of New York and New Jersey. This public government entity has authority over, among other things, United’s operations at the company’s huge east coast hub in Newark, New Jersey.

At the time, United’s Code of Conduct prohibited “United employees from directly or indirectly making bribes, kickbacks or other improper payments to government officials, civil servants or anyone else to influence their acts or decisions” and that “[n]o gift may be offered or accepted if it will create a feeling of obligation, compromise judgment or appear to influence the recipient improperly.” Only the United Board of Directors could grant a waiver to the code, and none was sought or obtained by Smisek. The Order concluded, “The [Chairman’s] Route was initiated in violation of United’s policies.”

The company was also sanctioned for not having internal controls to prevent such actions as those taken by Smisek. The SEC also found this was a violation of Section 13. This was in the face of detailing the protocol for the United instituting or reinstituting a route. The Order stated, “United had insufficient internal accounting controls to prevent approval of the South Carolina Route in derogation of United’s Policies.” All the underlying facts, enforcement theories, and remediation point towards the failure of internal controls when domestic bribery corruption occurs.

 Three key takeaways:

1. It is very unusual for the FCPA to form the basis of a domestic bribery violation.

2. A Code of Conduct can be an internal control.

3. Even a CEO must follow internal controls.

For more information on building a best practices compliance program, including internal controls, check out The Compliance Handbook, 3rd edition.

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31 Days to More Effective Compliance Programs

Code of Conduct as an internal control


In 2016, one of the most interesting non-international focused FCPA enforcement actions was announced by the SEC. It involved a clear quid pro quo benefit paid out by United Airlines, Inc. to David Samson, the former chairman of the Board of Directors of the Port Authority of New York and New Jersey, the public government entity which has authority over, among other things, United’s operations at the company’s huge east coast hub at Newark, New Jersey.
The reason that it is so interesting from an enforcement prospective is that it is not foreign corruption but domestic corruption, therefore not subject to the foreign government official requirement of the FCPA. However, the actions of United’s former CEO, Jeff Smisek, in personally approving the benefit granted to favor Samson violated the company’s internal controls around gifts to government officials. That sounds suspiciously like a books and records violation of the FCPA. The $2.4 million civil penalty levied on United was in addition to its NPA settlement with the DOJ, which resulted in a penalty of $2.25 million. Former Chairman Samson also pled guilty for putting pressure on United to reinstitute a flight service which was near his weekend residence.
At the time, United’s Code of Conduct prohibited “United employees from directly or indirectly making bribes, kickbacks or other improper payments to government officials, civil servants or anyone else to influence their acts or decisions” and that “[n]o gift may be offered or accepted if it will create a feeling of obligation, compromise judgment or appear to improperly influence the recipient.” Only the United Board of Director’s could grant a waiver to the code and none was sought or obtained by Smisek. The Order concluded, “The [Chairman’s] Route was initiated in violation of United’s policies.”
Three key takeaways:

  1. It is very unusual for the FCPA to form the basis of a domestic bribery violation.
  2. A Code of Conduct can be an internal control.
  3. Even a CEO must follow internal controls.